Medical pricing makes the head spin

@Davidlaz@KPCCofframp I'm in favor of more people named David running things

It began with a dizzy spell. Before long, though, what really had my head spinning was the inscrutable way that healthcare providers and insurers put a dollar value on medical services -- and how that leaves patients unable to determine a fair price for any treatment.

I woke up about a month ago with my bedroom feeling like the Mad Hatter's teacup ride at Disneyland. The sensation left me sick to my stomach and basically useless for hours.

My endocrinologist at UCLA's Gonda (Goldschmied) Diabetes Center advised me to speak with an ear, nose and throat specialist, and I booked an appointment with a physician whose office was down the hall.

The consultation went like this: We chatted for a few minutes, then he held me at awkward angles several times and promptly diagnosed me with benign positional vertigo -- a tendency to get dizzy if my head is in a certain position.

This took 20 minutes. The doctor performed no fancy tests or procedures. He prescribed no medication.

Last week I received a statement from my insurer, Blue Cross of Illinois, informing me that the doctor had billed $975 for the visit. The statement also said Blue Cross was paying just $243.64.

I contacted Anthem Blue Cross, which handles its Illinois counterpart's business in California, and asked if I was responsible for the outstanding $731.36.

"Oh, don't worry about that," a service rep cheerfully replied. "Because of our contract with them, the provider is writing that off."

So, was the treatment I received worth nearly $1,000, as the doctor apparently believed, or just a quarter of that amount, as Blue Cross had concluded? How can the provider and the insurer be so far apart in pricing a fairly routine medical service?

"It's a Byzantine system," said Jim Lott, executive vice president of the Hospital Assn. of Southern California. "There's no question about that."

Peggy Hinz, a spokeswoman for Anthem Blue Cross, said the insurer "relies on the latest medical pricing data and experts in the field" to determine how much it will pay for specific services.

"We always strive to reimburse a fair amount based on a provider's cost and based on what is reimbursed to other providers for like services," she said.

The ear, nose and throat specialist declined to discuss specifics of his billing. He said only that he had nothing to do with setting prices for his practice or negotiating contract terms with insurers.

Lott at the hospital association, which represents UCLA and about 170 other medical facilities, said patients are wrong to think that the charge on their bill reflects the actual cost of treatment.

Rather, he said, hospitals use a "cost-plus" system by which charges include both the cost of a service and a portion of general overhead, including treatment of uninsured people who can't afford the provider's cost-plus prices.

At the same time, insurance companies, along with state and federal authorities representing Medi-Cal and Medicare members, negotiate lower rates in return for delivering thousands of patients to a particular clinic or hospital.

The upshot is that providers are overcharging insured patients because they have no other way of meeting total expenses, while insurers are paying significantly less than the billed amount because they know they're being hit up for unrelated costs.

Insurers' underpayments, in turn, only force providers to increase bills even more. It's a system that both condones and perpetuates inflation while all but eliminating transparency in the marketplace.

It also spells doom for the 45 million Americans lacking health coverage, who have no choice but to pay the full amount of a hospital's cost-plus charges and thus can be wiped out financially by a major medical problem.

"Healthcare is the one sector where market mechanisms work least," said Peter Lindert, an economics professor at UC Davis who specializes in public-health issues. "Prices are whatever you can get away with."

As my colleague Jordan Rau reported last week, state lawmakers managed to pass some bills in the latest session that address healthcare problems but came up well short of their goal of reforming the system to make it friendlier -- and more accessible -- to patients.

Among legislation torpedoed by lobbyists for doctors and hospitals was a bill that would have given the state new powers to collect information on prices charged by healthcare providers.

Support for the bill dwindled after lobbyists managed to exempt doctors from the reporting requirement and inserted language recognizing the "tremendous burden" that revealing actual costs would be for providers.

Score that a win for the status quo and a setback for anyone who thinks healthcare costs are out of control.

"We are rapidly approaching a time where important policy discussions are going to have to be had on this issue," said Santiago Munoz, associate vice president of clinical services development in the UC president's office.

No, we're there already. What's needed is a massive infusion of political courage to tackle genuine healthcare reform.